All Forum Posts by: Duke Giordano

Hello,

A few Questions in regards to LLC structure for a LP (limited Partner) investor in syndications:

1. How would you recommend a Limited partner investor in real estate syndication only (but all over the country) structure a LLC to house syndication investments as a LP?

2. What structure, ownership, state, trust vs partner?  

3. In addition, what are the tax implication of such a structure, would it pass through a personal tax return as schedule E or does it need its own tax return?  

4. Who should own LLC? Should ones Estate plan trust (revocable) be beneficiary of the LLC?

Thanks

Duke

@Jon Schwartz do you happen to have excel sheets to share with those assumptions and graph output to evaluate syndication assumptions?

Thanks

Duke

Thanks @Ben Leybovich for your insightful comments.  Very much appreciated.

Thanks so much for your thoughful replies @Greg Dickerson, @Taylor L., @Danny Randazzo.  Very Helpful.  A few FU questions:

Rental Comp Inaccuracy: Good idea on looking up Asset address and Comp Address in google maps to see if in comparable area based on whats around the site.  Any other ways to double check the rental comps they are using, or do ones own rental comps in the area?

Underwriting Spreadsheet: Do you guys have a good Underwriting Spreadsheet that you recommend in excel?  Good idea, I can use this as a starting point for my own spreadsheet, and then assign a score/value to each important category to come up with a final score for the objective/quantitative component of the deals.

One thing I forgot to mention above was also Loan Terms: Look for Less than 75% LTV, and long term loan, varied rates. However, this evaluation has also become more nebulous to differentiate as many are using interest only for first couple years, then a bridge loan, such as a 5 year total with a three year (I/O) and then several one year extensions (3+1+1) and possibly an interest rate cap. I like to see Loan terms in the 7-10 year range to ride out down cycle, but gets hard to evaluate when broken up into multiple phases/components of the loan such as I/O, bridge, variable rate as opposed to a 10 year fixed). Not sure how you guys evaluate reasonable or desired Loan Terms on a syndication deal based on type, length, terms etc. that you look for.

Hey Guys,

Thanks in advance for your response. I am in the process of trying to refine/mature my syndication vetting/evaluation as an LP and trying to clarify some of the more tricky terms in the PPM or OM of the deal that can vary from deal to deal. In your opinion what are some of the more subtle variables that really make a syndication deal primarily in the MF asset class but can be applied to others as well a good or bad deal. These are the few I have come across and would be great if someone can help in bringing clarity on how to vet and evaluate some of the more subtle variables. It seems most deals have very similar numbers on returns so this is not a huge differentiating factor (Pref 7-8%, IRR, 15-17%, Equity Multiple 2x, etc). I am really trying to tease out the true differentiating factors that allow deal vetting.

1. Cap Rate Projection - It seems that each PPM openly states initial and Exit Cap but these can vary greatly by deal.  For those LP out there or others how would you evaluate the Cap Rate assumptions and what are the criteria that one should look for.  My inclination is to look for a Cap rate that increases in a reasonable fashion such as a 0.5-1.0% cap rate increase, but not sure if this is correct.  Also, does this criteria change based on hold time of the deal such as 3 Yr, 5Yr, 7 Yr etc?

2. Rent Assumptions Increase: It seems some deals assume a unrealistic rent assumption increase either based on the value add, or the annual increase seems unrealistic.  What are some of the specific criteria, that experienced serial LP investors look at the rent increase assumption both on the value add year 1 as well as annual rent increases?  Obviously, I believe its important to take into consideration the rent comps in the area, and how this relates to the projected rent assumption or if there is a portion of units that have already been value added that show successful implementation of the projected Increase.

3. Performance Evaluation: (IRR, Equity Multiple etc.) Based on my initial learning, it appears the true evaluation lies in two components, cash flow and overall return. Cash flow annual assumptions are pretty easy to evaluate, but overall return parameters seem a bit less clear. We see IRR, which seems to be a bit more nebulous and can be effected or inflated by changing hold time assumptions. Correct me if I am wrong, but it seems that Equity Multiple may be a more accurate parameter to asses overall return when you combine equity multiple with hold time. A reasonable equation would be (Equity Multiple/Hold Time). Thus a Equity Multiple of 2.0/5 yrs = 0.4; whereas an equity multiple of 2.0/3 yrs = 0.66.  Thus the latter is obviously more favorable (0.66 annual multiple vs 0.4).  

4. GP Fees: There does seem to me much fee variability, but what in you opinion is a fair fee structure.  Correct me if i am wrong, but in seeing a number of deals over last 6-12 months it seems the following is average: Acquisition in the 1-2%, Asset Mgmt (1-2% on monthly income but not on Asset Value), [Key question if Asset Mgmt fee is taken out before or after LP Pref].  The more rare/variable Fees include:Disposition (most don't have this fee but some do), Property Management Fee, Development/construction Fee, organization and offering..  Some BS Fees Seem, "Broker Fee" etc.  Not sure your thought on which fees are reasonable and which ranges, its seems most reasonable are 1-2% Acquisition and Asset mgmt (on monthly revenue, and taken AFTER LP Pref)?

I look forward to your thoughts and help as I am trying to better define and quantify when able to some more intricate components of the Vetting the Syndication process.  Obviously, a few of the most important variables cannot be quantified, such as sponsor due diligence, sponsor experience, geography/sub-market, risk etc.  But I am trying to form a sheet/program to quantify and score syndication deals to make some of the evaluation more objective.  Any other important/salient variables that you think are integral in comparing/vetting syndication deals would certainly be appreciated.

Duke

looks like Capitol One 360 charges $30 per wire, whereas Fidelity Cash portion of my brokerage account charges zero?  Looks like Fidelity cash portion takes the cake, will have to move some cash from high interest savings into the Fidelity acct.

Thanks for your reply @Mike Dymski.  I guess I just have to check which online savings accounts make wiring quick, easy and low cost?  On the brokerage side I was speaking specifically of my cash position (Money Market) in the brokerage account not any equity position.

Thanks again

Hey All,

As I am about to begin investments into the RE syndication realm had a question or two would appreciate your help on in regards to some logistics.  For those who invest in RE syndications as an LP specifically from a Post tax account (not SDIRA), what type of accounts/account features do you house your cash that is pegged for RE syndication use/funding?  What features are important to these type of cash accounts.  Does one use for example a brokerage account cash position say at like a Fidelity or Schwab or do people use like a high interest savings like a Ally Bank, or Cap One 360 etc?  Just trying to figure out where to move the cash pinned for use as funding for syndications as an LP for future investments and then have proceeds go back into that account for subsequent syndication investments.  Is the funding cash usually wired?

Thanks

Duke

I thought this was treated as passive income "Box 1" on K1?  Does anyone have a redacted K1 from them or thier own they can show with blacked out info?  Box 1 on K1 should not be subject to SE tax as far as I know.